Maharashtra Seamless- In-line results. :: Kotak Sec

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Maharashtra Seamless (518)
Industrials
In-line results. MHS’s 2QFY11 EBITDA at Rs1,036 mn was in line with our estimates of
Rs1,080 mn, even though revenues at Rs4.23 bn were 8% lower than our estimates of Rs4.6bn,
led by EBITDA margin which was 100 bps higher than our estimates of 23.5%. We believe
momentum in sales will rise going forward on account of rising world rig count, which augurs
well for the demand for seamless pipes. We roll our target price to FY2012E and maintain BUY
with a TP of Rs518 (Rs450 previously).





2QFY11 - operating results in line
MHS’s reported EBITDA of Rs1,036 mn (up 6% qoq, down 3.5% yoy) was almost in line with our
estimates at Rs1,081 mn, even though revenues at Rs4.23 bn were 8% lower than our estimates,
led by EBITDA margins which were 100 bps higher than our estimates at 23.5%. The reported PAT
at Rs801 mn (down 20.3% qoq; up 12.5% yoy) was 4.6% lower than our estimates as higher
than estimated tax rate (28.7% vs our estimates at 25%) was compensated by higher-thanestimated
other income (Rs136 mn vs our estimates at Rs100 mn).

Stable crude oil prices = higher rig counts = higher demand for seamless pipes
With crude oil prices stable around levels of $80/bbl, the worldwide rig count has been rising mom
since April ’09, which augurs well for the demand for seamless pipes. We expect greater traction
on the exports front for the company going forward. With the plant imported from Romania
expected to come online by the end of FY2011, MHS would be favorably placed to drive sales
volumes in FY2012E.

Maintain BUY with a target price of Rs518
We are rolling our target price to FY2012E and raising it to Rs518 (previously Rs450) based on 5X
FY2012E EBITDA. We value MHS at about the mid range of its historical trading range of 4-6X one
year forward EBITDA. We maintain our EPS estimates for FY2011E and FY2012E at Rs44.2 and
Rs50.9, respectively. We maintain our BUY rating as we find the valuations at 3.7X EV/EBITDA and
8.2 X P/E on FY2012E, attractive.